Calls for changes to residency rules intensify

The Tax Institute has called for increased flexibility around obtaining or retaining complying status for SMSFs where a member transfers residency overseas and then returns to Australia.

In a pre-budget submission, the Tax Institute said it is advocating the removal of the active member test.

“This test can result in an outcome where a fund loses its complying status because a member contributes while a non-resident even where they retain strong connections to Australia,” said the submission.

“The basis of this rule is presumably to limit use of superannuation taxation rules to those without a strong connection to Australia. The other tests for residency in our view already establish that connection.”

The rules determining what money from overseas pension systems migrants are able to bring into the Australian superannuation system should also be simplified, according to the Tax Institute.

“These measures will increase Australia’s competitiveness by ensuring that superannuation is not a barrier to preventing the inbound and outbound movement of people in an increasingly mobile world,” said the submission.

Australia will benefit from the increased savings flowing in, rather than these savings being stuck overseas due to the tax impost that would otherwise apply on bringing money to Australia, the submission argued.

Currently, there are contributions caps that limit the flow of inbound superannuation fund money and other uncertainties that relate to the current Div 305 of the 1997 Act.

The submission also made recommendations around contributions for various age groups, including increasing the contribution caps for individuals over 50.

It also argued that members aged 65 and over should be able to make contributions without having to satisfy any gainful employment test.

“Currently, this test requires these members to work 40 hours in 30 consecutive days,” said the submission.

“Often this test is satisfied in a somewhat artificial manner. This is leading to distortions as more and more people are working beyond 65 years given longer life expectancies, rising costs of living, lower real returns on investments and to sustain their lifestyles.”